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Exchange Rates and Wages in an Integrated World

  • Mishra, Prachi
  • Spilimbergo, Antonio

We analyze how the pass-through from exchange rate to domestic wages depends on the degree of integration between domestic and foreign labor markets. Using data from 66 countries over the period 1981–2005, we find that the elasticity of domestic wages to real exchange rate is 0.1 after a year for countries with high barriers to external labor mobility, but about 0.4 in countries with low barriers to mobility. The results are robust to the inclusion of various controls, different measures of exchange rates, and concepts of labor market integration. These findings call for including labor mobility in macro models of external adjustment.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7167.

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Date of creation: Feb 2009
Date of revision:
Handle: RePEc:cpr:ceprdp:7167
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  1. Dean Yang, 2006. "Why Do Migrants Return to Poor Countries? Evidence From Philippine Migrants%u2019 Responses to Exchange Rate Shocks," NBER Working Papers 12396, National Bureau of Economic Research, Inc.
  2. Jose Manuel Campa & Linda S. Goldberg, 1998. "Employment versus wage adjustment and the U.S. dollar," Staff Reports 56, Federal Reserve Bank of New York.
  3. Burstein, Ariel Tomas & Neves, Joao C & Rebelo, Sérgio, 2001. "Distribution Costs and Real Exchange Rate Dynamics During Exchange-Rate-Based Stabilization," CEPR Discussion Papers 2944, C.E.P.R. Discussion Papers.
  4. Ann Harrison, 2006. "Globalization and Poverty," NBER Working Papers 12347, National Bureau of Economic Research, Inc.
  5. repec:oup:qjecon:v:118:y:2003:i:2:p:549-599 is not listed on IDEAS
  6. Gordon H. Hanson & Antonio Spilimbergo, 1996. "Illegal Immigration, Border Enforcement, and Relative Wages: Evidence from Apprehensions at the U.S.-Mexico Border," Research Department Publications 4036, Inter-American Development Bank, Research Department.
  7. Bouton, Lawrence & Paul, Saumik & Tiongson, Erwin R., 2011. "The impact of emigration on source country wages : evidence from the Republic of Moldova," Policy Research Working Paper Series 5764, The World Bank.
  8. Donald R. Davis & Prachi Mishra, 2007. "Stolper-Samuelson Is Dead: And Other Crimes of Both Theory and Data," NBER Chapters, in: Globalization and Poverty, pages 87-108 National Bureau of Economic Research, Inc.
  9. Dean Yang, 2006. "Why Do Migrants Return to Poor Countries? Evidence from Philippine Migrants' Responses to Exchange Rate Shocks," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 715-735, November.
  10. Borjas, George J & Fischer, Eric O'N, 2001. "Dollarization and the Mexican Labor Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 626-47, May.
  11. Kevin A. Hassett & Aparna Mathur, 2006. "Taxes and Wages," Working Papers 49824, American Enterprise Institute.
  12. Peter Pedroni, 2001. "Purchasing Power Parity Tests In Cointegrated Panels," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 727-731, November.
  13. Carrington, William J & Detragiache, Enrica & Vishwanath, Tara, 1996. "Migration with Endogenous Moving Costs," American Economic Review, American Economic Association, vol. 86(4), pages 909-30, September.
  14. Linda S. Goldberg & Joseph Tracy, 2001. "Exchange rates and wages," Staff Reports 116, Federal Reserve Bank of New York.
  15. Robertson, Raymond, 2003. "Exchange rates and relative wages: evidence from Mexico," The North American Journal of Economics and Finance, Elsevier, vol. 14(1), pages 25-48, March.
  16. Pierre Cahuc & Stéphane Carcillo & André Zylberberg, 2014. "Labor Economics," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01076752, HAL.
  17. Gordon H. Hanson & Raymond Robertson & Antonio Spilimbergo, 2002. "Does Border Enforcement Protect U.S. Workers From Illegal Immigration?," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 73-92, February.
  18. Mishra, Prachi, 2007. "Emigration and wages in source countries: Evidence from Mexico," Journal of Development Economics, Elsevier, vol. 82(1), pages 180-199, January.
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